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UK Budget 2020: How to Deliver on Promises Without Breaking the Bank

by John Brian Shannon

Nobody likes paying taxes, that’s understood.

But sometimes, in order to fulfil the promises made during an election — the promises that were made to appease and please those who voted the present government into office! — taxation levels must accordingly increase to provide the things that voters have hired the government to accomplish.

The trick for governments is how to keep their election promises without losing the confidence of voters, and I therefore offer the following well-meant suggestions using the proven example of Canada’s economic miracle during the 1994-2015 timeframe:

  • As in Canada, the national GST rate in the UK should be set to 7% and should always hover between 5% and 10% in order to arrive at a zero-deficit budget, year-in and year-out. The GST shouldn’t be required to do anything else except to balance the budget, or, in the best-case scenario, to paydown some amount of government debt during any subsequent economic ‘boom years’ for the economy. That keeps it simple. (Although Canada has strayed from this plan recently and is now beginning to pay a price for its lack of committent to it’s formerly strict budgetary goals).
  • The national GST should apply to every single transaction in the UK and only medical items should be exempt, such as female hygiene products, emergency medical kits, plasters/band-aids, prescription medications, and diagnostic imaging equipment like MRI’s and Cat Scan’s etc.
  • Other than those exceptions, not one thing should be exempt from the national GST which would raise the total tax take for the government by a significant amount. (This plan worked wonders for Canada when it was in an economic tailspin) See: Jean Chretien: Lessons from Canada’s ‘basket case’ moment.
  • Things like fuel (any kind of fuel, such as fuel for aircraft, cars, pleasure boats and ships, locomotives, home heating fuels like kerosene or natural gas, coal, firewood, wood pellets, etc.) and every other thing that is sold in the UK should be GST taxable, including financial transactions of any kind, including fees paid for legal or financial advice, and on the fees to purchase mutual funds, bonds, and other financial instruments, and on homes, cars, lumber, kitchen gadgets, and every item or service sold in the UK.
  • Also, part of Canada’s economic miracle which began in the 1990’s was to lower corporate tax rates to 15%, then 14.5% and finally to 14% over a number of years, with a special tax rate of 10% for small-cap companies. This stimulated SME growth in the country that continues to this day, Indeed, Canada barely noticed the global financial crisis of 2007-2009, and it remained the fastest growing G7 economy before, during, and for a time after the U.S. subprime mortgage crisis.
  • The other important part of Canada’s economic miracle of the 1990’s and early 2000’s is that the government got rid of wasteful and overlapping government programmes — basically telling every government department that they had 5% “fat” built-in to their annual budgets and that each department (except for the Department of Defence) would be required to submit budget proposals for the next 3-years showing a 5% spending cut from planned spending levels — or the government would simply lop 5% ‘right off the top’ from said department without any further warning or consultation.
  • Not only did these things work well, but Canada also managed to make significant payments to paydown the government debt which was negatively affecting the economy and was costing a fortune in annual debt servicing costs. This in turn, allowed the Canadian government more room to manoeuvre from a federal budget perspective in subsequent years as less government revenue was required to service the accumulated deficits (debt) of Canada’s federal government.
  • The next government that came into power after Liberal Party of Canada’s Jean Chretien and Paul Martin, was Stephen Harper’s Conservative government which in 2015 implemented a brilliant stimulus package (a home renovation tax credit) that boosted the Canadian economy with only a tiny amount of stimulus. Which, as it happened, put every available tradesperson in the country to work for a full 3-years just to meet the demand. So many Canadians decided to spend more than the allowable $5000. tax credit amount to renovate their homes… that home building centres, home decorating centres, and car dealerships that sell tradesman vans and trucks could barely keep up with demand. It was the perfect solution to boost the economy after years of budget cuts designed to balance the federal government budget.

Canada taxation levels - Where your tax dollar goes

This image is familiar to Canadian taxpayers as it appears frequently on income tax related documents, showing where each taxation dollar is spent by the federal government of Canada. Image courtesy of Canada Revenue Agency


Rather than trying to reinvent the wheel, the new Chancellor of the Exchequer, Rishi Sunak might consider following the tried-and-true Canadian example of ending the many complicated and difficult to administer taxes throughout the UK economy and roll them into a simplified GST with a 7% rate that taxes everything except medical supplies and equipment, followed by a plan to lower government deficits to zero over 5-years (with legally-enforceable punishments for the government if it fails to meet its zero deficit targets) and by lowering the corporate tax rate to match Canada’s corporate taxation rates to stimulate the economy over the medium term, and by stimulating the economy with a modest tax credit for home renovations where better home insulation is a part of that programme which works for homeowners to lower their electricity bills and further stimulate the economy over the short term.

In this way, the UK government can begin its Brexit year on a sound financial footing, losing some confusing and overlapping smallish taxes while dramatically increasing its total taxation revenue, while at the same time it attracts new businesses to the UK and supports existing UK businesses with lower corporate tax levels, and by employing every single tradesperson in the country for at least the next 3-years.

Congratulations and best wishes to the new and highly-esteemed Chancellor of the Exchequer, Mr. Rishi Sunak!

3 out of 4 Isn’t Bad Theresa May – But Your Brexit Deal Isn’t Worth Signing

by John Brian Shannon

Last week Theresa May returned from the continent with a 585-page Brexit proposal in hand that she says is worth signing so that Brexit negotiations can move forward to the ‘Future Relationship’ phase where the UK and the EU scope out what each side wants from the other over the next 50-years.

But is that appropriate when she’s attained only three of the four goals that 17.4 million Leave voters voted for in the EU referendum?

It seems Theresa May has done her best. Of that, there is no doubt.

Certainly, she has travelled many thousands of miles, endured being summoned to Brussels at 5:00 in the morning to discuss Brexit with her EU counterparts, has suffered through countless knock ’em down drag ’em out marathon negotiating sessions, been castigated in the world media and has faced down a fractious Conservative Party that should’ve had her back throughout the entire process.

And all of that added to the knocks that she receives in relation to the rest of her job — the non-Brexit-related portion of her Prime Ministerial duties. Being a British Prime Minister is tough at the best of times. More people want you to fail than to succeed. I can’t imagine why anyone would offer themselves up as an ongoing human sacrifice like that.

In short: adding Brexit to her brief, meant adding to Theresa May’s grief!

As unfair as it sounds, Theresa May, for all her good and admirable intentions has failed to deliver the Brexit deal that 17.4 million Britons voted for and in good conscience empowered the Prime Minister to accomplish.

Now Theresa May wants to skip past one of the four pillars of a successful Brexit and begin negotiating the future relationship with the EU. And that’s a non-starter.

As terrible as it sounds, Theresa May has failed to deliver what she promised to voters, to UK business, and to her party. So, does that mean she should resign? Does it mean her party should fire her and put someone else in 10 Downing St? Does it mean the acting Queen of the United Kingdom should ask for Theresa May’s resignation?

In a word, yes. (All three) But, first, let’s try to make Theresa May understand that she promised to deliver a fair and balanced Brexit agreement — one that included the four pillars of Brexit success — and that she still has work to do in order to be allowed by her party to proceed onto the next phase of the Brexit negotiations.

She’s been (mostly) fair with us and the British public has been (mostly) fair with her. The same applies to Conservative MP’s, to non-Conservative MP’s, the media, UK business, and in relation to other stakeholders in Britain’s future; She has been (mostly) fair with them and they’ve been (mostly) fair with her.

So, let’s continue to be fair to Ms. May and give her the information she needs to realize that 3-out-of-4 isn’t good enough and also give her our full support to empower her to bring home all four pillars of Brexit success — before allowing her to proceed any further with the Brexit negotiations.

If she can’t bring home a worthwhile Brexit agreement that will pass in the House of Commons, then the UK needs a new Prime Minister.

But before we take that drastic step, let’s pull out all the stops to give Theresa May every possible opportunity and all the support she needs in order to succeed in obtaining a worthy Brexit deal. She’s earned that respect from us.


The Four Pillars of the Leave Campaign

The four markers of success for Brexit were the reason that 17.4 million Britons voted to Leave the European Union. And only on the basis that Theresa May said she could attain those four goals was she hired-on as UK Prime Minister.

Hitting 3-out-of-4 of those goals wasn’t discussed.

If she had at the time of her hiring, mentioned that she could attain only 3-out-of-4 of those goals she wouldn’t have been hired to be the UK Prime Minister and someone else would’ve gotten the job. But we believed her, and therefore, she got the job.

The Four Pillars:

  1. Take back control of the UK’s borders and immigration
  2. Take back control of the UK legal system
  3. Take back control of the UK economy
  4. Take back control of UK trade

And Theresa May’s Brexit deal delivers only three of those points.

As the Prime Minister has said in recent days, her agreement will allow the UK to take back control over its borders and immigration policy, it will allow the country to take back control over its court system, and it will allow the UK to take back control over its economy.

But the deal she has handed in won’t allow the UK to negotiate free trade deals with other countries — and very much worse than that — there’s no end date for that portion of the agreement.

Theoretically and probably practically as well, the EU could keep the UK in a state of suspended animation — with the UK unable to write its own trade agreements — forever. And forever is a long time. Trust me on this.


Theresa May Has a Promise to Keep or She Must Step Aside

As horrible as it sounds, Theresa May has only kept 3-out-of-4 promises in regards to her most recent Brexit pronouncements, and if she can’t keep her fourth promise, she needs to step aside and let a new Prime Minister tackle the thing that couldn’t be done.

But first she should read a great poem by the poet Albert A. Guest:

It Couldn’t be Done

Somebody said that it couldn’t be done
But he with a chuckle replied
That “maybe it couldn’t,” but he would be one
Who wouldn’t say so till he’d tried.
So he buckled right in with the trace of a grin
On his face. If he worried he hid it.
He started to sing as he tackled the thing
That couldn’t be done, and he did it!

Somebody scoffed: “Oh, you’ll never do that;
At least no one ever has done it;”
But he took off his coat and he took off his hat
And the first thing we knew he’d begun it.
With a lift of his chin and a bit of a grin,
Without any doubting or quiddit,
He started to sing as he tackled the thing
That couldn’t be done, and he did it.

There are thousands to tell you it cannot be done,
There are thousands to prophesy failure,
There are thousands to point out to you one by one,
The dangers that wait to assail you.
But just buckle in with a bit of a grin,
Just take off your coat and go to it;
Just start in to sing as you tackle the thing
That “cannot be done,” and you’ll do it.

As far as the rest of her premiership, Theresa May has done a fine job and until last week when she crashed a bit or ran out of steam, she was getting stronger and more focused every week since taking the job in July 2016, and therefore, should be accorded every respect should she choose to step down.

Few people have worked harder or endured such media spectacle and political grief and in British politics that’s saying something. All of that said however, the future of the country is more important than one Prime Minister no matter how admirably she has tried.

So, let us know your decision, Theresa. We stand by to help you reach a perfect 4-out-of-4 score — which is the only score the UK can contemplate in this case. And if you feel you can’t deliver what you’ve many times promised we wish you well in your future endeavours!

Austerity Has Changed How the World Views the UK

by John Brian Shannon

Why, for the love of God, don’t governments utilize the most obvious solutions to solve their budgetary challenges whenever a global financial crisis hits, instead of defaulting to budget cuts that can appear either inept or mean-spirited?

Finance Ministers don’t set out to craft inept or mean-spirited policies during times of economic crisis, but that’s how it plays out in the media and in living rooms across the country or wherever people gather to discuss the economy.

In the UK, this manifests itself in the names that people call their political parties.

If government austerity cuts don’t affect you, you continue to call the Conservative Party by its rightful name. But if austerity hits you hard, then you’re one of those who’ve taken to calling the Conservatives ‘The Nasty Party’ — and they’ll never get your vote ever again, etc., etc. (Yes, I do empathize, BTW. But that’s not what this blog post is about)

It just depends upon which side austerity hits you.

And budget cuts (at least budget cuts perceived as unfair by a significant percentage of the population) almost always result in either a lost election or loss of parliamentary majority at the next election. Check out those stats! (You’ll see how true that statement is)

Theresa May’s ‘hung Parliament’ election result in June 2017 is 100% attributable to the UK austerity budgets that have been in effect since 2010, and hers is just one example out of many majority governments around the world that have suffered as a result of their austerity policies.


There IS a Better Way!

Due to market conditions, about every 25-years a recession comes along in the capitalist countries. You can almost set your clock by it. It’s the ‘nature of the beast — carry on’ is how recessions are described by economists, and nobody tries to prevent recessions, as such ‘resets’ help to prevent even worse economic crashes in the future.

Still, there’s a way for countries to survive economic downturns WITHOUT shooting themselves in the foot every day of the recession. (A novel idea!)

The public knows an economic downturn when they see it. In fact, they have enough experience in their own lives balancing family finances when times are good, let alone when domestic financial challenges appear such as a job loss or (suddenly) another mouth to feed. Therefore, they know the government must compensate whenever the country faces a financial challenge.

The question for governments is how to do it and not lose the next election. Or the one after that.

And the answer is; To do it fairly.

That is; Apply cuts that will be perceived as ‘fair’ by a majority of the public  — instead of deep cuts to some departments while other departments see no cuts at all, or worse, are able to increase their spending.

Does it seem fair to you while in recession that Health or Education should receive deep cuts, while spending on the military or the environment is unaffected? (I’m just using hypotheticals here for an example. Every Briton knows their military is chronically underfunded and few begrudge the UK military being exempted from budget cuts)

Back to the subject at hand; Every department in practically any organization on the planet has 5% ‘fat’ built-in to it. It’s just the way of organizations.

Budgets tend to be tightly managed in the first few years, then, over time, surpluses accrue or unused properties aren’t sold off as quickly as they could be, or in other ways there’s potential for either budget savings or revenue increases. Or, depending on the department, perhaps a combination of selling off unused assets and departmental savings could meet the new budget targets set by the government.

If you’re a large organization like the UK government and you expect your revenue to fall by 7% (for example) here’s the way to do it fairly!

Simply inform your departments of the 7% budget exigency, and instead of arranging deep cuts for some departments and zero cuts to others which sets the seeds for future electoral defeat, inform all departments to cut their budget by 7% — or alternatively — tell them to find ways to increase their revenue by the shortfall amount.

Let me be clear, if former Chancellor of the Exchequer George Osborne had simply told every government department in 2010, “We’re facing a 7% (or whatever percentage) cut in revenue, therefore, each government department must cut 7% from their annual budget until further notice,” each department would’ve done exactly that and hardly anyone would’ve noticed. (Remember, every organization/department already has 5% ‘fat’ in their system, so only a 2% budget challenge remains in this hypothetical example. At that point, accounting for the final 2% equates to selling off surplus real estate assets until that amount is obtained)

On the other hand, some departments might be real estate ‘heavy’ and could counter their entire 7% budget challenge by simply unloading their surplus real estate, thereby meeting the government’s directives to cut costs by 7% or increase revenues by 7% (or any combination thereof) to hit their departmental budget targets.

Wouldn’t that have been much better than the pain inflicted on the bottom-two economic quintile people in Britain (and which cost Theresa May a parliamentary majority) all of which has conspired to cheapen the ‘British brand’ around the world?

Read here, in the New York Times just how ‘fairly’ or ‘unfairly’ (depending on your worldview) the United Kingdom’s austerity plan has been portrayed around the world.

A country’s fortunes (fairly or unfairly) can rise or fall based on the perceptions of large numbers of people. Let’s hope that future UK budget cuts will not only be fair, but be seen to be fair by large numbers of Britons and by people around the world.